Important Questions to Ask a Financial Advisor


Written by Stowe, Vermont Financial Advisor Steve Schleupner, ChFC®

I’m often amazed at how seldom we interview professionals that play instrumental roles in our lives. Whether it be a doctor, accountant, counselor, or financial advisor, it is vital to gather knowledge around the full affiliation with their services. Speaking in the realm of financial advising, many people struggle to understand the important questions to ask a financial advisor and why. A common tactic is to Google relevant questions, but often times these questions do not get to the root of what’s important to understand.

Before interacting with any financial institution, it is first important to know that financial companies need to hold money in order to make money. This is true for investment firms, insurance companies, banks, credit unions, you name it. The company wants to hold as much money as it can, and wants to grow the amount of money they hold each year. It’s the primary driver of their profitability. It’s also the driver on how they position their client facing representatives to interact with the public. Yes, it is true we want our financial providers, and their advisors, to be profitable. However, do we want them to be exorbitantly profitable from our money?

In addition to the common questions, easily gathered through a Google search, I suggest probing with these four important questions to ask a financial advisor. These questions can help you understand how your money is compensating the advisor, how your money is contributing to the company’s profitability, and what objectivity and knowledge you gain in return.

1. How are you paid? Does your firm set sales quotas and expectations for you, and do those quotas and expectations change periodically?


Employees are an expense. Any company who hires an employee should expect a return from that person’s efforts. That’s fair. Many financial companies take it a little bit further by asking their financial advisors to sign contracts that outline expectations, roles, and, most importantly, income potential. These contracts are “unilateral” in that they are created by the financial company, and the financial advisor accepts the terms as conditions for employment and compensation.

The design intentions with these contracts dictate where the advisor should place his limited time and energy. The contracts are the driving force behind an advisor’s current compensation, as well as how the advisor will manage their portfolio of clients going forward. We hear many marketing messages in commercials and other advertisements touting how firms look out for investors to help them meet their goals, or how the investor is of primary importance. Certainly, these messages can be true, but to what extent when there is a contract around sales quotas, expectations and compensation?

I have worked under several unilateral contracts since becoming a financial advisor in the early 2000’s. These contracts changed almost yearly under every company. It’s the carrot and the stick. Dangle the carrot in hopes of getting the advisor to chase it.

Financial companies cannot afford complacency in their sales force. They need more revenue to compete and grow market share so they move sales targets and tie health care reimbursement, retirement contributions, commission payouts, overhead reimbursement, and so forth to those sales targets as a way to incentivize the worker to not only produce more, but to also produce more profitable work. The advisor can find himself in a pickle between doing what is best for the client, and doing what the parent company is asking.

Not all advisors succumb to these pressures, but the question is a good one to understand. If the advisor has sales quotes and expectations, why not understand what they are and how those have changed over the advisor’s tenure with the company. In doing so, it may be possible to uncover the intent behind a recommended product or strategy.

2. Are you a full-fiduciary with all accounts and all account sizes, or do you also sell financial products, like mutual funds and annuities?


Advisors can have different licenses, which may permit them to trade stocks, and/or sell mutual funds, annuities, life insurance, or other products. Other licenses permit advisors to manage investment portfolios for a fee. When I started my work as an advisor, the parent company required that I obtain a FINRA Series 7 license to sell mutual funds, stocks and bonds, a FINRA Series 66 to manage investment portfolios under a fee-based arrangement, and a life and health insurance license to sell certain insurance products. This is common across the industry, and it happens in various forms, irrespective if a client is working with an insurance agent, bank advisor, or large investment firm advisor. There is a drive by the parent company to “cross-sell” products to extend profitability, and these licenses permit this.

So, why is a full-fiduciary important? Full fiduciaries tend to run an investment program, and then customize client needs within that program. They do not typically sell commission-driven products, such as annuities, insurance, and mutual funds. Instead, their compensation most often is a fee tied to the work within the investment program.

Many financial firms touting their ability to act in a fiduciary capacity employ advisors who carry multiple licenses. The advisors have the ability to place clients in a fiduciary platform and also sell products. With this dual capability, how can the advisor be a true fiduciary full-time?

Here’s an example. Assume “Big Name Wall Street Firm” only allows accounts that are over $100,000 to participate in their fee-based, fiduciary program. John and Jane Smith are interested in having the advisor manage his $250,000 IRA, and her $25,000 Roth IRA. The advisor may find herself in a position to manage the IRA wearing her “fiduciary hat”, and manage the Roth IRA wearing her “product sales hat.” It’s easy for the Smith’s to hear the word fiduciary and apply the definition across the board, when, in fact, the advisor acted under her sales license to receive a commission from the product sale.

3. Are you willing to explain all the fees I pay your firm, and all the costs within the investments you select? Would you put that in writing for me?

The investment world is one where we transact business and, more often than not, do not get a true receipt showing what we paid. Most financial advisors are conduits to the overall market. It is common practice to pay a financial advisor, and then pay an additional cost inside the investment program the advisor selects. Confusing, right? Here’s an example:

    As the Smith’s work with their advisor on the fiduciary, fee-based program the advisor recommended for his IRA, the financial advisor shows them an investment program that consists of a pool of professionally managed mutual funds that fit an asset allocation model suitable for the IRA. The financial advisor discloses her fee of 1% to manage the account, and gives the Smith’s a lot of paperwork and disclosures as part of the process to open the account. They feel 1% is a fair price, and agree to work with the advisor.

    It turns out that the Smiths are paying the financial advisor 1% and paying each professionally managed mutual fund an additional cost. Mutual funds are companies. They have expenses and those expenses are passed to the investors. Investors pay for the team managing the investments, as well as operating expenses, marketing expenses, and trading costs the fund incurs as it transacts purchases and sales of investment holdings. A mutual fund takes these costs from the investor and reports the net value to the client in the form of the current value of the fund. The Smiths never see the money go out the door.

    Assume the average mutual fund fees the Smiths are paying throughout their IRA is 1.2%. Their total fee is now 2.2%, yet they only see the 1% advisory fee going to the financial advisor on their monthly statement. The mutual fund fee was, however, disclosed in the thick packet of disclosures and documents they received when opening the account

It’s a great idea to have the advisor explain the true costs. Get it in writing, if at all possible. They may not be able to tell you to the penny what the fee is, but they can explain in writing how you are paying fees holistically within the investment program, and give you a close percentage as to what you can expect to pay each year.

4. Will I get an Investment Policy Statement, or some written document, explaining what I’m invested in and why?


The idea behind investing is to put money to work. One wouldn’t hire an employee, without defining specific roles and responsibilities. Similarly, one should understand the roles and responsibilities of each investment they employ. Investment plans and Investment policy statements should give a clear description of what each investment sets out to do, and why it is part of the portfolio.

The financial advisor is able to encapsulate this information in a succinct way. Yet, many do not take the time to do it. As a client, however, it is important to understand what investments you are hiring and why.


There are many other questions to ask a financial advisor. However, an understanding around these four important questions to ask a financial advisor are paramount. They are not something most investors would think to ask, or understand why they should ask them.



Written by Stowe, Vermont Financial Advisor Steve Schleupner, ChFC®


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